Quick turnaround

Lars Olofsson has only been in China for three months, but he’s been in the airlines business for 21 years. Born in Gothenberg, Sweden, he grew up in Australia and that’s where he got his start working in reservations. He says he "stumbled into" aviation, but the sector appears to have charmed him. Today he is general manager for Greater China at Scandinavian Airlines. He spoke to CHINA ECONOMIC REVIEW about the airline’s return to profitability in the third quarter, the role of service in product differentiation, and the challenge of integrating systems with partner Chinese airlines.

Q: How is Scandinavian Airlines doing these days?

A: In all seriousness, we are actually faring extremely well, given the circumstances. All the airlines have suffered, but we are very fortunate: 2009 was a good year. Our latest reported earnings were for the third quarter in 2009, where we announced positive earnings of US$5.5 million. I believe our success was due in part to the consolidation of the capacity and routes we offer; there have been some international destinations we have stopped flying into, like India and Seattle. We also cut some routes into continental Europe. Overall we’ve reduced our capacity by 18%. We were probably one of the first airlines to act in a major way on this, which has helped us stave off some costs. In China, we’ve maintained: We haven’t reduced, we haven’t grown. And that has also proven to work very well. Last year was a very positive year for us in China, all things considered.
Q: Can you quantify that?

A: It’s not double-digit growth in terms of revenue, but close to it, which under the circumstances we are extremely pleased about. Growth on the Beijing-Copenhagen route has been particularly good. Copenhagen is our main hub. From there we branch to Scandinavia and northern Europe, which is our main strength.

Q: What’s the passenger pattern like? Are most of your passengers originating in China or Europe?

A: It’s pretty well balanced. We have a good mix in terms of point of sales in China and Scandinavia, and then in Germany and France, which are our other key markets. It’s a good balance of corporate and leisure traffic, so we’re not overly reliant on any given market segment.

Q: Many airlines use revenue from business class sales to discount the price of economy class seating. When business class sales dry up, it’s harder to compete across the board. Have you experienced this issue and if so, how are you dealing with it?

A: Yes. There has been a downturn in overall business, and our business class traffic showed some decline, driven by corporate policy: less frequent travel, more economy class travel. It’s very true to say that corporate traffic has declined, but we have reacted by reducing our fares from time to time, which has actually helped grow our net business-class revenue. We’ve seen corporate traffic returning over the past two months, but we’ve also had some leisure traffic increases.

Q: Apart from differentiating on price, is there any other way to get business-class flyers to pick your airline? Or is price the only important factor?

A: It is true that more often the airlines of the world have a fairly similar product in terms of business class technical features. What we offer of course is our service, and we have a very Scandinavian approach to that, which is les robotic, more friendly and more professional than some of our competitors. Our service style and ethic creates better product delivery. We also offer things on the ground that are first class. For example, we have a fast-track security clearance system for our business class and our premium economy customers.

Q: Given what’s going on in the US and the general increase in screening requirements, how do you handle dealing with security and speeding up the process at the same time?

A: Obviously we don’t compromise any security measures. Security and safety are number one, but the system does provide priority for the premium passengers who are traveling with us. It’s quite an expensive operation, but we realize we have to do something more for our premium customers. We’re in negotiations with the airport in Beijing to see if we can offer something similar here. We are close to signing a contract for fast-track service here, which is almost a meet-and-greet level of service. This involves going to collect our customers at the door, before they even step into the terminal, and bringing them all the way to the gate.

Q: A lot of people are saying Chinese tourism is the wave of the future as far as leisure air travel is concerned. What are you doing to target Chinese leisure travelers?

A: We haven’t actually focused too much on that over the most recent years, but my strategy is to develop closer ties with the local customer base here. One of the vehicles we are working with is the Scandinavian tourist board, so we can target those customers more efficiently.

Q: Where is the average Chinese passenger on your airline going?

A: For business, they are flying into Denmark and Sweden predominantly, and into northern Europe. For leisure, they are quite evenly spread between Denmark, Norway and Sweden. There’s a lot of interest in Norway, with the fjords and the scenery and so on, but it’s fairly evenly spread.

Q: Any plans to add additional routes here?

A: We are looking at expanding in this marketplace, which I can’t talk too much about at the moment, but obviously Shanghai is high on the list. China is probably one of the most profitable routes we operate into, and there are many opportunities in this market we’d like to take advantage of.

Q: Do you have any code-sharing or partnership agreements with Chinese airlines?

A: We are a founding member of Star Alliance, and Air China has recently joined that organization, so we have code share relations with them. It’s a harmonious relationship.

Q: I understand that the different technology bases makes integrating operations with Chinese partner airlines difficult. Do you agree?

A: It does actually create some challenges for us and our customers, but we are working through them. We are working closely with Air China on this. There are several points where we want to have an integrated check-in and one-ticket concept, and we are in negotiations over that. It really is technology based, and we are reliant on them to deliver it, which they are doing.

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